GE 186: How Klout Founder Joe Fernandez Sold His Business for $200M and Started Joymode (podcast)
With Joe Fernandez

Hey everyone, in today’s episode I share the mic with Joe Fernandez, co-founder of Joymode, a business that lets you access everything you need for great experiences. Joe previously founded Klout, an app that measures social media influence.

Listen as Joe sharesthe journey from launching Klout to selling it for $200M, the lessons he learned from pitching Klout to 200 small investors to later raising $3M for Joymode from big-name investors, and how Joymode consistently sees 25% monthly growth with just word-of-mouth advertising.

08:59 – Joymode wants you to enjoy your experience so you can tell your friends about them

09:21 – They made a pop-up this month to showcase the experience

09:57 – Joymode was able to raise $3M from investors

10:11 – Raising money for Joymode was easier than when Joe raised for Klout

10:53 – With Klout, Joe pitched more than 200 investors but only got 37 small investors

11:29 – A lot of those investors were not ‘big names’

11:49 – Joe networked with investors when he had the chance

12:07 – Joe always struggled with pitching

12:49 – What helped Joe was deciding the kind of company he wanted to build and that eased his comfort in pitching

13:09 – It’s perseverance and believing in your story

13:47 – There are a lot of lessons Joe got from Klout that help him in his journey with Joymode

15:00 – Joe grew in his leadership abilities

15:46 – What’s one big struggle you faced with growing Klout to the $200M sale? “The transition from being able to like design and build product that end users touched to being completely out of the process…was a painful and challenging transition”

16:21 – Joe realized his product is now the “organization”

16:38 – What’s one big thing that has affected your life dramatically? “I always wanted to take on big challenges and build cool things”

17:22 – “Startups, in general, are like an emotional roller coaster”

18:05 – They became well-known for their Klout Score

18:36 – They’ve had billions of API calls per day to provide insight and support

19:19 – There are also thousands of brands who paid to connect them with influencers

20:22 – “Our fate was out of our hands”

21:04 – Klout was the right product at the right time

22:26 – Klout was super optimized on growth

23:46 – “It’s a lot harder now…than in 2012 or 2013”

24:14 – What’s one new tool that you’ve added in the last year that has added a lot of value to your life? “The Sous Vide is like a product that you can cook almost anything perfectly”

26:00 – What’s one must-read book do you recommend?But What If We’re Wrong?

27:16 – Klout had about 10-20K users before it was sold

27:34 – Connect with Joe on Joymode and on Twitter

3 Key Points:

Remember to consider customer experience and satisfaction in everything you create—whether it’s a brand, a product, a service, etc.

Your past experiences equip you and make you ready for your next journey.

Every startup is an emotional roller coaster, expect the highs and lows.

Full Transcript of The Episode

Joe Fernandez: A great example is our backyard movie night is probably our most popular experience. It's chairs, blankets, a screen, projector, even an old timey popcorn machine, everything you need so that you could have your friends or neighbors over to watch a movie in your backyard. We would deliver that to you and we would pick it up when you're done.

Speaker 2: Do you want to impact the world and still turn a profit? Then you're in the right place. Welcome to Growth Everywhere. This is the show where you'll find real conversations with real entrepreneurs. They'll share everything from their biggest struggle to the exact strategies they use on a daily basis. So if you're ready for a value-packed interview, listen on. Here's your host, Eric Siu.

Eric Siu: Before we jump into today's interview, if you guys could leave a review and a rating and also subscribe as well. That would be a huge help to the podcast. So if you actually enjoy the content and you'd like to hear more of it, please support us by leaving us a review and a subscribe to the podcast as well. Thanks so much.

All right everybody. Today we have Joe Fernandez who is one of the co-founders of Joymode which let's you access everything you need but don't own for great experiences. Joe also previously founded Klout which sold to Lithium Technologies for nearly 200 million. Is that correct, Joe?

Joe Fernandez: Yep. I was co-founder and CEO of Klout from start all the way past the acquisition.

Eric Siu: All right. Awesome. Let's talk a little bit about Joymode first and before we even do that why don't you tell us a little bit about who you are and what you've done up to now.

Joe Fernandez: I've always been an entrepreneur. I don't think I've ever had a just normal job. I love building things and I think I approach entrepreneurship from a product and marketing perspective as opposed to maybe an engineering or finance or sales or whatever and I specifically love building things for consumers so Klout was broad-based but I thought of it as a consumer app and Joymode certainly is a consumer app where we're really focused on helping you just have better experiences with your friends and family by providing you access to products that you don't necessarily want to own.

Eric Siu: Got it. Okay. What prompted the idea for Joymode?

Joe Fernandez: It's been around for a long time in my mind. Even before I started Klout, I was thinking about Joymode. I was living in New York and I met my then girl friend, now wife. We decided to move in together and our apartment was so small that everything we bought we had to basically get rid of something just to function in that space and it really kind of opened my eyes and changed my perspective to how I thought about ownership and it was really nice to be unencumbered by all the things that kind of pile up around you.

At the same time I think broadly there's been this shift, this kind of mega trend

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where as a society we don't judge status anymore on how far out in the suburbs somebody lives and how much they fill their house with stuff. It's more about the experiences people have and people care about those experiences and it's really, it's about those moments and the reality being a lot of times you need specific products to have those moments, if you're going camping you need a tent and a blanket and a cooler and a stove and 10 other things.

I've been thinking about it through kind of parallel while building Klout just wishing this existed because I'd changed personally from wanting to own stuff but was always prevented from doing things. We never would go camping because I didn't want to buy all that stuff. That's kind of the origin story and when I transitioned out of Klout after our acquisition and took a little break to recover from the intensity of that experience I couldn't shake the idea that this was something that I wanted to build.

Eric Siu: Great. Just for clarification, you guys weren't exactly doing, people aren't like peer to peer sharing their belongings. You guys actually own the stuff, right? And then you guys are ... People are subscribing. How does the business model work?

Joe Fernandez: Yeah, I'm literally sitting in the middle of our warehouse right now in downtown LA where we've curated all these experiences and we actually own the products. There's been attempts at this but they've always come from a P2P perspective of like, "Okay, I'm gonna help coordinate between a group of people so I can come get something out of your garage" and the friction there is just really high so we wanted to be able to provide a consistent, magical experience where you could touch a button and step into a life and have the things you want and need.

We do own everything. The business model is you pay a subscription. It's $99.00 for the year, that gets you your first experience for free. A great example is our backyard movie night is probably our most popular experience. It's a chair, it's blankets ... It's chairs, blankets, a screen, projector, even an old timey popcorn machine, everything you need so that you could have your friends or neighbors over to watch a movie in your backyard. We would deliver that to you and we would pick it up when you're done. You get it for free with your first reservation, but after that you pay a reservation fee, which is always less than 10 percent of retail.

That's like $1200.00 worth of equipment, you could reserve it from us for like $85.00 and we pick it up and deliver it.

Eric Siu: Wow. Okay. What would be like the practical example or what do you see being ... I guess what kind of events are you seeing booked out the most?

Joe Fernandez: We support a wide range of things. The way we thought about it is ... We really think about a calendar a lot here so what does a year look like for somebody kind of 28 to maybe 40 living in LA, what are all the things you want to do. Maybe you're going to Coachella, you might go to Palm Springs one weekend. You're definitely

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going to the beach a couple of times. You're going on a first date. What are all those things where you might have to borrow or buy stuff to accomplish them and where can we provide a better experience by just giving you access to those products. I mentioned the backyard movie night, camping is another popular example.

With the holidays right now we have karaoke machines and that's really popular and we have stuff for cooking so if you wanted to bake Christmas cookies we would send the Kitchenaid and all the roller and the pans and everything you need to make cookies. Even cleaning, a fancy high-end Dyson vacuum and a stain remover and before and after your guests come you want to do a deep clean, we have all that stuff.

Eric Siu: Talk about your growth rates. You guys have been pretty consistent for the last couple of months. What does that look like?

Joe Fernandez: In April, it was kind of late March, early April we officially launched Joymode, but we still are in private data and we were not doing any press so all of our growth has been word of mouth and really what happens, we think about this moment where you're hosting a backyard movie night and a bunch of your friends come over to your house and everyone says, "Wow, man. I didn't know you had a giant screen and where'd you get that crazy popcorn machine from?" You're gonna say, "No, it's this crazy company. They gave me access to it and they delivered it and blah, blah, blah."

All of our growth has come from those conversations, which I think are really powerful. We've had consistent 25 percent plus month over month growth since then. Frankly, the numbers are small, still. We're just getting going but the consistent growth since then as we head into 2017 we're excited about what we're seeing.

Eric Siu: Okay. Where is that growth coming from? What's working for you in terms of customer acquisition?

Joe Fernandez: It really is that word of mouth. We're really leaning into that in terms of our most important growth category or growth channel. All of our experiences lend themselves to things you are going to do. You're gonna be with other people when you go camping. Are you gonna have other people over when you do a Joymode game night or whatever it is. We want to make it so that experience is so great that you want to tell your friends about us. We'd rather have you hear about us from your friends than from an ad on Instagram or Facebook or whatever so we spend a lot of time on customer support, on packaging, on design, on all those things to make it delightful and amazing.

We are doing a popup this month where we rented a store front in Silverlake, a neighborhood here in LA, so that people could come in and actually see the experiences and we staged it and it looks really cool and give people a chance to

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experience Joymode in a more tangible way that you might see on the app or the site. That's been a big growth channel for us, too. We've definitely got in a lot of new users from that.

Eric Siu: In terms of ... One thing I'm looking at over here is you guys have raised three million from great investors, one of them being Chris Sacca's Lowercase Capital. For the people that are looking to raise money, I'm looking at Sherpa Ventures here, too, how do you go about securing or raising from great investors like these?

Joe Fernandez: It was a lot easier this time around than when I raised my first money with Klout. When I started Klout I had literally never met an investor before. I never even met anyone who worked at Google before so I didn't have that network. With the success of Klout I was able to make friends and relationships with a lot of great people around and specifically great investors that were excited to get behind Joymode. So maybe the question's more relevant to the Klout experience since, I don't know. It was definitely unfair advantages on this Joymode one.

Back in the Klout days I literally pitched probably 200 investors to raise our angel round and I ended up getting 37 angels and they were like all small checks.

Eric Siu: How big were they?

Joe Fernandez: I don't know. $25,000 average checks? It wasn't like ... Ideally you don't want that many investors because they're hard to manage and this and that, but you also do whatever you have to do to give your company cash to survive. I took what I could get and a lot of those investors at the time weren't the big names and some of them have become big names and it's been awesome to see but it wasn't like I had Chris Sacca in the seed round of Klout. The kind of learnings there were I was able to get investors to introduce me to other investors. Once I met one investor, he introduced me to another one and I got that one to introduce me to another one and I just kind of networked down the line until 200 pitches later we had raised our seed round.

Second was a little harder lesson was I was struggling a lot when I would pitch where an investor would say, "Oh, cool. I really like what you're doing with Klout. I wish you were more focused on data" or "I wish you were more focused on advertising." Whatever they would say I would go home and say, "Okay, I'm gonna redo the deck and I'm gonna kind of refocus on that thing and tell the story from that side" and then literally the next day I would go pitch to somebody and they'd be like, "Oh, this is really interesting. I wish you weren't so focused on data. I wish you thought more about this."

For six months my head started spinning and I was turning into a crazy person from kind of over listening to investor feedback and what finally helped me was deciding the company I wanted to build and getting comfortable with pitching it as many times as it took to find people who believed in that company.

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Eric Siu: Got it. Okay. Cool. It just sounds like what I'm hearing is it's nose against the grindstone, constant consistency. That's what I'm hearing.

Joe Fernandez: Yeah. Yeah. It's just perseverance and telling your story and believing in it.

Eric Siu: Great. Okay. Let's talk a little bit more about Klout. I think the fact that you sold it for nearly 200 million bucks, I think there's a lot of business lessons that you've picked off from there. What have you learned from Klout that you've been able to carry over into Joymode? What are the key things that keep popping up over and over. It's like, "Oh, I experienced to set Klout and I know what to do this time around Joymode."

Joe Fernandez: I had never worked in a company of more than 10 or 15 people before. I had never really managed anyone before. I had certainly never raised money. So there were a lot of learnings give me a foundation in starting Joymode that is really helpful. One thing I'm afraid of is there's so much hype around this idea of the serial entrepreneur and that you should know everything because you've done something in the past and I try to be really careful to not fall into that because this isn't Klout. I'm not building Klout and Klout was a bunch of circumstances that got luck and hard work and a bunch of other things and it worked that we need to make happen in it's own way at Joymode.

It's nice that Joymode is different enough in terms of like we are shipping, manually delivering and we have a warehouse of physical goods. Klout was a purely digital thing that it feels fresh and I feel naïve enough again because I think there's a lot of strength in not knowing how hard something's supposed to be that kind of unlocks different perspectives that I want to try to take advantage of. From Klout experience, I like to use the lessons learned on how to be a better coach to the team, how to be a better communicator as opposed to pure business lessons that may not be applicable to Joymode.

Eric Siu: Perfect. Yeah. I like the way you put it there. The leadership lessons, I think those definitely carry over but each business is different so I think a lot of people, especially if you look at ... I think I was reading something the other day about how there's a lot of investors that will give you ideas but the ideas that they have or the advice that they have is from other businesses. It could have been very long ago, too, that might not be applicable to yours so I think I guess having a sense of humbleness, being aware that what carried you over from Klout or what did well for you doesn't really carry over to Joymode so I think that's good insight. Talk about one big struggle you faced while growing Klout eventually to that 200 million dollar sale.

Joe Fernandez: There were a lot them. It was kind of a constant struggle. I mentioned that as an entrepreneur I think of myself as a product-centric entrepreneur and Klout started with me in my bedroom building this thing that I thought would be cool. The transition from being able to design and build product that end users touched to being completely out of the process and realizing that my product was now the org.

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My product is the org that creates the product that end users touch was like a lot, was painful in some ways and challenging certainly transition and a lot learned.

Eric Siu: What's one big thing, positive or negative, that has impacted your life dramatically?

Joe Fernandez: I've always wanted to take on big challenges and build cool things and I have found that just staying true to that whether it's investors telling you why your idea won't work or giving you other ideas that aren't really helpful or just not being willing to support you or hires you can't close or people who leave your company or whatever but being focused on what the ultimate thing you're trying to accomplish and why that's important to you and to add to it, not getting too high or too low. Startups in general are an emotional rollercoaster where hour by hour I would either feel like we were gonna take over the world or that we were like so screwed and getting comfortable with those cycles and not letting yourself get too high or too low, having been really impactful on my life.

Eric Siu: What's an example of you guys being close to "Holy crap. We're screwed" moment for Klout. It would be interesting to hear that story because I mean from a marketer's standpoint I always understood Klout as this thing that scored how well you were doing socially but I never understood the additional application for it so I would love to hear your stories.

Joe Fernandez: We became well known for the Klout Score. I always thought of that, it was our best asset and our worst enemy in the sense that people were really well aware of that and it kind of became a worldwide thing but it was also the tip of the iceberg and I kind of betrayed what was below the surface and there was actually a lot of cool things we were doing below the surface that weren't as big as a novelty necessarily as the Klout Score, but actually provided real value. We worked with ... We had billions of API calls a day from thousands of companies who had used Klout to provide insights into how to provide support to their customers.

So an example would be like you go to check into a hotel in Las Vegas, their reservation system would hit the Klout API and give back a score and without you knowing they'd say, "Oh, we'd love to send you to see Cirque Du Soles tonight" or "upgrade your room" or whatever just because you had this strong social presence and so it's great for the hotel, it's great for consumers and we were powering that. We also had thousands of brands who paid Klout to connect them with influencers so we had a product called Klout Perks where Nike, Disney, Audi, all these top brands would pay to connect with people that were influential about topics relevant to that brand.

We were doing double digits millions in revenue so it was a legit business and the ups and downs and the original question being like, "When did you feel like you were screwed?" In the early days we got multiple times down to, "We're like not gonna make payroll in two weeks if we don't close this funding or close this deal" or whatever, and those are intense kind of pressure. We also, we were built on top of Twitter and Facebook and Instagram and all these social platforms so in a lot of

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ways our fate was out of our hands.

We were always kind of, the rumors and stress of like, "Well, what if they cut us on the data" and those types of things and negotiating those deals where like life and death. Kind of the more hype we got externally and the better people thought we were doing the more sure I was that we were gonna die.

Eric Siu: How did Klout start becoming so popular? What do you think actually filled that, I guess, your popularity?

Joe Fernandez: I built a lot of things that were like wrong product, you know, maybe right product, wrong time and more things that were like wrong product anytime and Klout was really this kind of right product, right time where it was like social media was just transitioning from being like for kids where it was like Myspace was what social media was to, "Oh, this matters for your job" and the world is changing and everyone has the ability to broadcast and build an audience and all these things and what does it mean and like we came along and helped try to make sense of that and then it touched into ego, it touched into this transition that was happening on the web where the web was changing from being about changes to being about people and we just like rode that wave.

The name 'Klout' was compelling and kind of perfect for what we were doing and I guess I can't understate how big the ego ... It was like ego crack and people checking their Klout scores and comparing their Klout scores and all those things. So it was right time, right place, right idea.

Eric Siu: Okay. Was there any specific ... I mean, was there like a ... Because people on this show they like the growth hacks, right, and I'm error coding right now. Was there any specific widget or some kind of viral effect like Dropbox that caused people to find out about it more? Because I'm not even sure how I found out about Klout.

Joe Fernandez: We were super, super optimized on growth. We had a really amazing product and design team that were incredibly metric-driven and super creative. We had a lot of the stuff that is kind of common now that's AB testing or different invite flows or whatever. We were right there. I think we were such a big customer mix panel that even though we've been acquired multiple years ago, our logo is still on the front page of their site. We were from day one using that on every single action and just like optimizing.

It was so highly optimized to get people to invite their friends. The other thing was more of a social engineering and the way we positioned the score and some of the ways we got people to brag about their Klout score and you're Twitter feed ... We were getting just like tens of thousands of tweets a day people talking about their Klout scores and you would see that in your feed and be like, "Well, I wonder what my score is." And that flywheel gets going. It's a lot harder now. I don't know ... The things we were doing are kind of standard practice now and people are a lot more thoughtful about what they share on social so I don't [inaudible 00:23:58] hooks as

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big and as strong as they were in 2012 and 2014. We were pretty aggressive and pretty creative and definitely metrics-driven around that stuff.

Eric Siu: What's one new tool that you've added in the last year that's added a lot of value to your life?

Joe Fernandez: It's been interesting. We, again, we have a warehouse full of products. There's lots of stuff I never imagined using or liking or caring about that I get to play with or take home whenever I want now. This is so un-started related or tech-related even. I'm not a cook. The sous-vide is a product that you can cook almost anything perfectly so easy and I take that home a lot and reserve it from Joymode and eating well and having that has been really ... It's just like a nice thing to kind of add to general living.

Eric Siu: That's when you basically, that's when you zip up meat and you basically put it in water for a very long time and it just cooks?

Joe Fernandez: Yeah, yeah. With Joymode, we'll send you the vacuum seal so you can ... What I like to do is go to the butcher and get a nice piece of meat and then vacuum seal it and then we use the Anova sous vide and it has an app and you set what the meat is and it may take a couple of hours because it cooks at a relatively low temperature, but it's perfect every time and it's generally just awesome. It's like where cooking and technology meet and that's pretty interesting to me.

Eric Siu: Awesome. I remember seeing ... I think I saw one on Shark Tank a couple of weeks ago so I have been looking into that more. Anyway, my partner loves using that thing all the time and I've always wondered about it. Okay. That's a good one. What's one must-read book you'd recommend to everyone?

Joe Fernandez: I am reading right now, I'm reading a book called What If We're Wrong. It's been really interesting. It's basically the idea that over the course of time almost inevitably everything that seems common knowledge gets proven wrong like the next generation, how to open your thinking to be more flexible or more just open minded in general to things. I guess because I'm reading it now I'm pretty into it.

Eric Siu: Love it. Okay. Great. And one final question. Before you sold it how many users did you grow it to?

Joe Fernandez: We were double digits millions of users. We were growing fast and we had kind of three components to the business because there was the consumer side where we had double digits millions of users. We had our data side where we were doing multiple billions of API calls a day and then we had our ad business where we were doing double digit millions in revenue.

Eric Siu: Got it. And when you say 'millions of users' or 'double digit millions of users' is it like 10, 20, 30? What range is that?

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Joe Fernandez: Closer, like between 10 and 20. I think when we got acquired it was pretty close in the middle there.

Eric Siu: Got it. And I'm sure a lot of the ... You're going through the roller coaster again so I'm excited to see what happens with Joymode. We might do another one when you guys have even more traction and want to talk about that more for sure. Joe, this has been great. What's the best way for people to find out more about you and what you do online?

Joe Fernandez: You can go to Joymode.com or we're in iPhone app store. I'm just @joefernandez on Twitter and, yeah, I'd love to connect with anybody.

Eric Siu: Cool. Sounds good. Joe, thanks so much for doing this.

Joe Fernandez: Thank you. Talk to you soon.

Speaker 2: Thanks for listening to this episode of Growth Everywhere. If you loved what you heard, be sure to head back to GrowthEverywhere.com for today's show notes and a ton of additional resources, but before you go, hit the 'subscribe' button to avoid missing out on next week's value-packed interview. Enjoy the rest of your week and remember to take action and continue growing.

Joe Fernandez
Joymode

Eric Siu (@ericosiu) is the CEO at Single Grain, a digital marketing agency that focuses on paid advertising and content marketing. He contributes regularly to Entrepreneur Magazine, Fast Company, Forbes and more.